By Scott Malone and Nick Carey
BOSTON/CHICAGO (Reuters) - Shares of top U.S. manufacturers including 3M Co
It was the latest sign that a financial crisis that has already claimed storied Wall Street names including Bear Stearns Cos and Lehman Brothers Holdings Inc
The Standard & Poor's capital goods industry index <.GSPIC> tumbled more than 5 percent -- falling twice as fast as the broad S&P 500 <.SPX> -- after a Barclays Capital analyst cut his view on the sector to neutral from positive.
The news came after the U.S. Senate gave its nod to a $700 billion government bailout package intended to boost the financial sector and stave off a prolonged recession.
"Regardless of legislative outcomes, balance sheets and psychology are likely to drive a deeper and more sustained credit crunch than we previously thought," wrote Barclays Capital analyst Shannon O'Callaghan, in a note to clients.
He said he expected already-weak markets like autos and housing to get worse, and a slowdown in nonresidential construction to intensify.
NOT IMMUNE
The downgrades show that industrial companies -- many of which have argued their international growth opportunities and solid balance sheets should carry them through any downturn -- are not immune, investors said.
"The credit crunch is becoming systemic and it's affecting companies' ability to borrow and also affecting their customers' ability to grow," said Perry Adams, vice president and senior portfolio manager at Huntington Private Financial Group in Traverse City, Michigan. "Everybody is anticipating that is going to result in weaker earnings. The $64,000 question is the degree and the extent of earnings decline."
Barclays cut its price target on 14 capital-goods companies: 3M, Honeywell, Textron, Colfax Corp
Shares were down across the sector, with General Electric Co
The S&P capital goods index is down some 33.5 percent so far this year, deeper than the 22.9 percent fall of the S&P 500.
U.S. exports and earnings for companies with a significant international presence benefited earlier this year from the weakness of the U.S. dollar. But the dollar has rallied recently, with the dollar index <.DXY> touching a one-year high on Thursday.
"The currency (dollar) is beginning to work against these companies and they're facing a very tough economic environment," said Tim Ghriskey, chief investment officer at Solaris Asset Management.
"This is not going just to affect industrial companies, we are going to see this across the board," Ghriskey said. "The global economic outlook is not good, which means it's going to harder for these industrial companies to do business."
